fund manager efficiency

efficiency = skill * breath * implementation

IR = IC * sqrt(N) * TC

There is this great paper talking about a key measurement named information ratio – which is the excess return for a unit of active tracking error [JPMorgan]. Keep in mind that it is different from the Sharpe ratio as the information ratio is related to the excess return and risk with respect to an existing benchmark, so instead of the absolute volatility, it will be the tracking error.

At a very high level, IC is the information coefficient between -1 and 1 that indicates how good a manager expect to be and turn out to be. The information ratio also grow with the number of independent decisions and the last item, transfer coefficient means the level of constraint.

If you are particular interested in information coefficient on its own, this is an video from Quantopian teaching you how it is being measured from the practical point of view.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s